Are you a business or are you a hobby?

Are you a business or are you a hobby?

Are you a business or are you a hobby?

We see lots of "businesses" at our office, which don't really qualify as a business, but instead qualify as a hobby.  The worst offenders that we see are farms.  WHAT??????  Yes, farms.

What am I talking about?  First of all, there must be a “profit motive” to be in a trade or business.  Every 3 out of 5 years should show a profit.  (The only exception is the horse industry, which gets 2 out of 7.  They must’ve had a good lobbyist). 

What do you need to do to help show proof of a profit motive?  Here are some suggestions:

  • Separate checking account for the business
  • Have a written business plan, and follow it
  • You don’t show a loss from year to year (not counting depreciation expense)
  • There are also other factors:

    1. time doing the activity (you need to have a history in the business)
    2. You have have assets you expect to appreciate (and thus show a profit down the road)
    3. You have expertise in the business, or hire somebody that does
    4. Financial status (is this your ONLY business, and your ONLY job)
    5. Personal pleasure (are you doing this only because you enjoy it?)

What to do?  Maybe it's time to report those cow sales or other income you've been sitting on.  You don’t want to risk all those years of losses you’ve taken up to now.  Call (903)-723-8894 and setup and appointment to discuss what is best in your situation.

 

Sloan Shuffler loves horses is a Certified Public Accountant /CGMA in Palestine,Texas.

 

 

 

 

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